When it comes to obtaining finance, one fact that many business owners are unaware of is that their own personal credit history will be considered as well as the businesses financial record. A good credit history means that more lenders will look at your proposition and the terms will be better. It is wise, when reviewing your business plan, to include a regular check of your finances.. This way we won’t need a time machine to go back and fix this when you need to arrange finance in future. Don’t despair though if your credit is not perfect right now, and you need finance, there are still options available, but looking after your credit, and planning in advance to get your credit in the best shape it can be, means that we can access more lenders and source your finance on much better terms, saving you money in the long run.
Let’s look at ways to check and improve your credit report now to ensure that your credit is in the best shape it can be!!
Most people should be checking their credit scores on a regular basis. It helps to protect you from fraud as you will spot unusual transactions quickly. Plus, you will see whether there are old debts that you may have forgotten about. The three most popular companies to check with are Equifax, Experian, and Credit Karma (formerly Noddle). Credit Karma offer a free credit report service too!!
Checking your credit record
First, check that the right personal details are listed and correct. Then look to see that you are on the electoral roll, if not, this is a priority to sort out. Register to vote here Check each account on the credit report is correct and that the amount owed is right. Do remember the credit agency only gets an update once a month so an approximation will suffice. Spend time reviewing your Credit Report and if something doesn’t look right then investigate. Unresolved errors could negatively impact your score or, worse, could be a sign that fraud has taken place. If you find any inaccurate information on your report, contact the lender or file a dispute directly with the credit reference agency. Check the financial associations section too. This section details anyone that you have financial links to now and in the past. This could be an ex-partner who may have been on a joint account with you, for example. Joint mortgages and loans can stay on your report long after a relationship has ended, unless you get them un-linked. You may think that it is harmless to leave someone on your credit report who is no longer linked to you, however, if that person has poor credit it could impact your ability to obtain credit in future. Request a notice of disassociation directly with the credit reference agency to clear this up.
If you miss payments on your loans, mortgage, utilities, or mobile phone contracts, then these can show up on your credit report. They will impact your score, though if it is just the one, then 6 months down the line, your score should come up again. Regular missed payments across many accounts will be a red flag to a lender. Late payments and defaults are recorded on your credit report and remain there for 6 years, even if you have settled the account and paid off the debt. Making minimum repayments on time each month will help to improve your credit.
How much credit do you have available already?
Consider closing accounts that are no longer active. Unused accounts can result in fees and even increase your risk of fraud if you don’t monitor them. Lots of unused accounts especially credit card accounts with active limits, also means that you technically have access to lots of credit. Some lenders see this as a risk too. Your credit score can also be influenced by the ratio of credit available to credit used, so be careful of closing numerous accounts at the same time, even if not used, as this increases the ratio of credit used to credit available and can negatively impact your score. Consider closing accounts over a longer period to tidy this up. It’s a balancing act!! Long standing accounts with a good track record can be beneficial to keep and resume using too.
Each time a lender searches your file, a record is kept. This means if you go shopping around for a deal and a search is made each time, this can be detrimental to your score. Searches stay on your account for a year. Be aware that some comparison sites will do a search, even if you are just making enquiries.
CCJs and Bankruptcy
These are the big ones. Having County Court Judgements (CCJs) on your record is going to seriously dent your score. Good news is that if you have paid them and they are shown as settled, then this lowers the impact and lenders will look more favourably than if they are shown as active. This information stays on your record for 6 years, after this period of time it will drop off and your score will rise again. Bankruptcy is more difficult, and you may just have to wait until the 6 years are up.
All these things take time to fix, so you should start at planning and following good practices before you want to apply for business credit. Ask any partners or directors to do the same, this way no horrid surprises will pop up and scupper your chances of securing the finance that you need. And you won’t need a time machine!!
If you would like some help with a financial health check or assistance in looking for business financing options, then please contact us.